Candy maker rebuffs $23 billion offer by Mondelez
By Liz Hoffman, Dana Mattioli and Dana Cimilluca
Mondelez International Inc. made a roughly $23 billion bid for
Hershey Co. in an effort to create the world's largest candy maker
at a time when both companies' sales are under pressure.
Mondelez, which makes Oreo cookies and Cadbury chocolate bars,
recently sent a letter to Hershey proposing a tie-up at $107 a
share, half in cash and half in stock. Hershey's board unanimously
rejected the bid Thursday and said it "provided no basis for
further discussion."
Still, Hershey shares surged 17% to $113.49 on news of the offer
-- first reported by The Wall Street Journal -- remaining elevated
even after the company rejected the bid, in an indication investors
believe Mondelez won't be discouraged. Mondelez shares gained 6% to
$45.51, giving the snack giant a market value of more than $70
billion.
A takeover of Hershey, known for its namesake Kisses and
chocolate bars, would face obstacles. Any deal would require the
approval of the Hershey Trust, which holds 8.4% of its common stock
and 81% of its voting power and has opposed a sale in the past.
A spokesman for the trust, whose board includes three Hershey
directors, declined to comment.
In preparing its bid, which was disclosed in a private letter
last week, Mondelez took steps to win over the trust. The
Deerfield, Ill., company pledged to protect jobs, locate the merged
company's global chocolate headquarters in Hershey, Pa., and rename
it Hershey, said a person familiar with the matter.
A Mondelez-Hershey merger would bring together the candy
industry's second- and fifth-largest players by revenue, according
to research firm Euromonitor. Mondelez is second only to Mars
Inc.
The union would be expected to face little resistance from
antitrust authorities, as Mondelez doesn't have its own presence in
the U.S. chocolate market. Hershey, which makes the Cadbury
chocolate sold in the U.S. under a licensing deal with Mondelez,
has a limited presence outside the U.S.
Among the potential hurdles for Mondelez: its bid could flush
out other parties who might covet Hershey. Nestlé SA is one
possibility. The Swiss food giant, which has a big chocolate
business, licenses its KitKat brand to Hershey in the U.S. But
Nestlé could face bigger antitrust issues in the U.S. if it were to
try to buy Hershey.
Nestlé has the right to reclaim control of KitKat at no cost if
someone else buys Hershey. That could reduce Hershey's value to
Mondelez by $3 billion, according to a person familiar with the
matter.
The Hershey Trust, established by the 122-year-old company's
late founder, Milton Hershey, is the biggest potential roadblock.
The trust's primary beneficiary is a school for underprivileged
children in Hershey's hometown.
Mr. Hershey was considered as much a philanthropist as an
entrepreneur. As he built the chocolate company, he raised a town
as well, erecting a bank, a department store, churches, golf
courses, a zoo and a trolley system. Then, in 1909, he and his
wife, Catherine, founded a school for orphan boys, now called the
Milton Hershey School. Today the lavishly appointed private school
serves disadvantaged children of both sexes.
Over a decade ago, chewing-gum maker Wm. Wrigley Jr. Co., now a
unit of the privately held Mars, tried to buy Hershey, but
resistance from the trust scuttled the deal at the last minute. A
joint bid from Nestlé and what was then Cadbury Schweppes was also
rejected.
The Pennsylvania attorney general is investigating the trust's
board for alleged overpayment of directors and conflicts of
interest, and the trust has said it is working with the attorney
general's office on the probe. This year, several of the directors
have resigned, which could change the board's attitude toward a
possible sale. Indeed, a person familiar with the matter said the
trust, which now includes some directors with Wall Street
backgrounds, may now be more open to a deal.
It also isn't clear how any any deal would be received in the
town of Hershey, where streetlights along Chocolate Avenue are
topped with giant Hershey kisses.
Hershey had sales of $1.8 billion in the first quarter, a 5.6%
decline from the year-earlier period, in part because of adverse
currency moves. In 2015, the company had sales of $7.4 billion and
earnings of $513 million. The company has about 80 brands, and has
recently moved to court more health-conscious consumers.
Mondelez, based in Deerfield, Ill., had sales of $29.6 billion
in 2015, down 14% from a year earlier, also partly due to currency
swings. In the first quarter, its revenue fell nearly 17% to $6.5
billion, amid pressure on its coffee business.
Mondelez has a complicated deal-making history. The company is
the product of a 2012 separation from Kraft Foods Inc., which had
been under pressure from Trian Fund Management LP and other
activist investors. That came only two years after Kraft had
acquired the U.K. chocolate company Cadbury PLC for $19 billion,
and the chocolate assets went with Mondelez in the separation.
When Kraft bought Cadbury in 2010, it promised it would protect
jobs in the U.K. and keep open a factory there. Within months, it
announced it would close that plant after saying it had learned new
information about its profitability. The U.K.'s Takeover Panel
criticized the company and its bankers for the reversal.
Last year, William Ackman's Pershing Square Capital Management
LP disclosed a 7.5% stake, worth $5.5 billion at the time, betting
the company would become a target, rather than an acquirer, in a
coming wave of consolidation in the snack industry. Mr. Ackman
recently trimmed the Mondelez stake to 5.6% including options.
Trian also has a 3% Mondelez stake and the firm's co-founder,
Nelson Peltz, is on the snack company's board.
Trian in 2013 unveiled stakes in PepsiCo Inc. and Mondelez and
began pushing for a merger of the two to be followed by a spinout
of Pepsi's beverage business. Pepsi rejected the idea, and Trian
dropped its call for a merger when Mr. Peltz joined Mondelez's
board in 2014.
--David Benoit and Annie Gasparro contributed to this
article.
Write to Liz Hoffman at liz.hoffman@wsj.com, Dana Mattioli at
dana.mattioli@wsj.com, Dana Cimilluca at dana.cimilluca@wsj.com and
David Benoit at david.benoit@wsj.com
(END) Dow Jones Newswires
July 01, 2016 02:47 ET (06:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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